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ESG compliance: data’s role in the sustainable journey

ESG compliance

ESG compliance is an increasing legal requirement and data strategies, technologies and software solutions are the only way for a business to effectively capture, manage and audit its carbon footprint, explains Nick Gibson.

ESG compliance means collecting and using data to make decisions that guide measurable and responsible business practices. Whether it’s lowering greenhouse-gas emissions, optimising supply chains or reducing waste, insights from sustainability data can power positive change while increasing profitability.

Companies today can face a blizzard of ESG reporting measures that have to be identified, measured and managed. With increasing governance requirements the need and importance of data management and ESG compliance has become a priority.

“There’s a huge legal requirement on business to report on their carbon and energy data under the Streamlined Energy Carbon Reporting framework and if you get that wrong you get fined,” says Nancy Hobhouse, head of sustainability at Evri the UK’s biggest dedicated parcel delivery company. “SECR is the bare minimum in terns of ESG reporting. If you want to understand your strategy, what levers to pull to make the most difference you must have a decent data set that has an understanding sustainability and of the business as a whole.”

Nancy has played a central role in transforming the company’s data strategy, not just in ESG compliance but across whole business operations, processes and management. “I’m very strong on data; I believe you can’t manage what you can’t measure,” adds Hobhouse who has a degree in environmental modelling. “Data is the core foundation of a sustainable business and quality data is essential for a robust and efficient ESG strategy.”

Evri began its ESG compliance journey in May 2021, completed its first carbon report in September then engaged an environmental reporting software company called UL360. “In December 2021 we reported on our second carbon footprint and published it in June 2022 after it was audited by Deloitte,” Hobhouse says.

“This data is important and is reported to our executives and wider supervisory board every month. ESG data is critical to our business, we have a main operations dashboard as well as individual dashboards so each client has their own data and an understanding of our services and how that affects the environment and how they report that into their own ESG data. We consult with major clients to asses their monthly carbon footprint and suggest ways they can reduce carbon use involved in their parcel journeys. We provide verified data and information that shows them how to make changes to reduce their carbon footprint.”

Data science can help create a more sustainable organisation via production planning and forecasting. New sources of data such as satellite data, new technologies and new analytical approaches can enable more agile, efficient and evidence-based decision-making and can better measure progress on sustainable development goals.

ESG compliance and reporting is a minimum legal requirement but the data it produces also supports and drives business management decision-making, Hobhouse says. “We use it for everything; environmental, operations and forward planning. We’re forecasting to our net zero target of 2035 and our modelling tells us what we need to do and when in order to reach our targets. Without data we couldn’t make these key business decisions. Data modelling now supports and drives our procurement strategy, our roadmap and timeline for carbon reduction trials, fleet replacement, electric vehicles and hydrogen-powered trucks.”

Evri takes data seriously as it is central to the entire business, Hobhouse says. “We have a chief data officer that sits on the board and oversees all data produced and used by the company. His role is linked to our corporate transformation strategy and we work closely to ensure we’re getting the data we need and using to it best effect. Our systems are interconnected and data is interlinked to provide greatest possible reporting and oversight.”

ESG compliance: challenges to overcome

Companies face a range of challenges in capturing and reporting ESG data with financial, technological and practical issues often a barrier to progress. “Finance has not been a major hurdle to implementing our net zero strategy,” says Hobhouse. “Evri is comfortable investing in ESG and has been doing so rapidly. Technology elements have been relatively straightforward and the data reporting system we use meets our needs. Culturally we’ve had a positive buy-in with sustainability a priority in every senior leader’s objectives and across the business.”

The biggest hurdle was at the start of the journey identifying and sorting the data needed, Hobhouse says. “ESG data sits across the entire business; involving fleet, energy, buildings and suppliers and you have to engage with every aspect and every team to gather and organise the data you need. Environmental reporting involves a dozen different teams across our business, it takes time and patience to bring people along on the journey but the effort is worth it.”

Having established reliable data reporting from each part of the business steps were taken to ensure the data was clean and accurate before the company ten set about implementing its wider strategy based on the information produced by the system. Hobhouse admits: “The first year was the hardest but once established it gets easier as you go along.”

GSRP Scope 3 creates voluntary confusion

Reporting standards involved in Scope 3 of the Greenhouse Gas Reporting Protocol can be a complex challenge, Hobhouse says. “Scope 1 (direct emissions) and Scope 2 (indirect emissions) are mandatory but Scope 3 is voluntary, which causes confusion as it involves 16 different categories and companies can choose which one they report on.”

Evri’s ESG compliance and net zero targets are based on mandatory Scope 1 and Scope 2 and the company reports all Scope 3 categories across the whole business. “Scope 3 is unbelievably complicated,” Hobhouse admits. “For Evri it’s been complex but not impossible as we’re a UK-based service company and we do not make products so Scope 3 has been easier to report on. We support the accuracy of some of our Scope 3 by using SPEN (SP Energy Networks) in data reporting.”

There are plans to make Scope 3 mandatory over coming years but Hobhouse believes it is currently a near-impossible task. “It would just set people up to massively fail due to the complexity and lack of clarity involved. Right now there should be stricter controls on the reporting framework to create full transparency and make companies declare what they’re not reporting. Clarity is essential to make it all work effectively and to create trust.”

Businesses increasingly have to ask each other about their ESG reporting and one set of data reporting from one company can benefit others up and down the chain. Likewise, a carbon hotspot at one point in the chain can tip the balance negatively in ESG reporting at another point

“We are consulting with our top10 supplier partners to identify carbon hotspots, their use of fleet vehicles and how we can help them to reduce their emissions and carbon footprint,” Hobhouse says. “We’re a large company with our own big fleet and have vital knowledge and processes in place that help and benefit us, and it can benefit them too.”

Key steps to ESG compliance and data reporting

“The ESG reporting market is mature and embracing regulatory changes. Mandatory reporting has been a legal requirement for the past two years but sectors like banking have been voluntarily ESG reporting since 2008. We use Deloitte to audit our financial and ESG accounting and draw upon their wide experience and resources but there are proven smaller ESG specialist auditors that are equally effective.

“ESG data auditing is important especially when you first start out as the more oversight the better the outcome, auditors will always find something wrong or something to improve upon which is exactly what you want. You can identify what you need to do, work on it then go back a year later and show that you’ve got it right. It’s expensive but it delivers visible value for money by improving processes and holding people to account.”

Companies starting out on the ESG reporting journey often do not have necessary experience in-house and should reach out to specialist consultancies or software companies that can help them identify what needs to be done and how to do it, Hobhouse says. “Big data requires expertise not just in technology and software but in creating a robust strategies and frameworks. Large companies will require a dedicated software-based solution because the amount of data points involved means that mistakes can and will happen and greater oversight and control is needed. Small companies with less complex reporting generally use Excel-based systems and formats. If you can’t afford expensive solutions there are many online tools available to help you meet Scope 1 and 2 reporting requirements.

“ESG specialist consultants and organisations like the Carbon Trust can help you begin the journey then once you’ve established and implemented your strategy you invite auditors to oversee and report on your efforts and activities. It’s wise to engage with auditors at the outset so you know you’re meeting their reporting needs.

“My advice to anyone starting out on the sustainability journey is; always start with elements that are within your control, things that are easy to manage. However experienced you may be in ESG compliance and reporting never be afraid to ask for help; there’s plenty available to support and power your net zero journey.”

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